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Merchandise exports earning increases in Feb.

Gross official reserves stood at US dollars 7.9 billion at end February 2020, equivalent to 4.7 months of imports. Total foreign assets, which consist of gross official reserves and foreign assets of the banking sector, amounted to US dollars 10.9 billion at end February 2020, equivalent to 6.5 months of imports.

The trade deficit widened in February 2020 compared to February 2019, as expenditure on imports increased at a faster pace than the increase in earnings from exports.

The tourism industry, which recovered faster than expected in the aftermath of the Easter Sunday attacks, was affected again with the outbreak of COVID-19 evolving as a pandemic from late February 2020.

Significant implications on the external sector performance are expected from the COVID-19 pandemic from March 2020 onwards, particularly in the areas of merchandise trade, tourism, workers’ remittances and foreign investment.

The deficit in the trade account widened in February 2020 to US dollars 574 million, from US dollars 451 million in February 2019, as the increase in imports surpassed the increase in exports. However, on a month on month basis, the trade deficit in February 2020 recorded a contraction.

On a cumulative basis, the trade deficit widened to US dollars 1,304 million during the first two months of 2020 compared to US dollars 1,069 million in the corresponding period of 2019.

Meanwhile, terms of trade, i.e., the ratio of the price of exports to the price of imports, deteriorated by 3.5per cent (year on year) in February 2020, as export prices declined at a faster pace than the decline in import prices.

Earnings from merchandise exports increased in February 2020 for the first time since June 2019 by 0.7 per cent to US dollars 988 million, year-on-year, led by the increase in industrial exports though agricultural and mineral exports declined in comparison to February 2019.

Earnings from industrial exports increased in February 2020 in comparison to February 2019.

Despite the decline in earnings from garment exports from the USA, export earnings from textiles and garments increased, albeit marginally, due to increased exports of textiles and other made up textile articles.

Earnings from agricultural exports declined in February 2020, on a year on year basis.

Lower volumes exported led earnings from spices and coconut to decline in February 2020, while lower average export prices resulted in earnings from tea exports to decline.

Amidst lower demand from the USA and the EU, earnings from seafood exports also declined in February 2020.

In contrast, earnings from export of minor agricultural products and natural rubber increased notably during the month. Earnings from mineral exports recorded decline in February 2020, year on year, led by lower earnings from earths and stone exports.

The export volume index in February 2020 improved by 5.2per cent, while the export unit value index declined by 4.2 per cent, indicating that the increase in exports was driven entirely by higher volumes when compared to February 2019.

Expenditure on merchandise imports increased notably, on a year on year basis, in February 2020 for the third consecutive month, though recorded a decline on month on month basis. Accordingly, expenditure on imports increased by 9.1 per cent to US dollars 1,562 million in February 2020driven by higher consumer and intermediate goods imports partly due to the lower base recorded in February 2019.

Expenditure on imports of intermediate goods also increased in February 2020, from a year earlier. Higher volumes of crude oil, refined petroleum and coal imports led expenditure on fuel to increase during the month, although average import prices remained low compared to February 2019. Expenditure on food preparations (mainly palm oil), rubber and articles thereof, fertiliser (mainly urea), chemical products imports also increased in February 2020.

However, textiles and textile articles imports declined significantly, led by lower imports from China due to supply chain disruptions amidsttheCOVID-19 pandemic.

Meanwhile, expenditure on investment goods imports declined in February 2020 compared to February 2019.

Expenditure on machinery and equipment imports declined, although machinery and equipment parts imports increased notably. Expenditure on transport equipment and building materials also declined.

The import volume index increased by 10.0per cent, while the unit value index declined by 0.8per cent in February 2020, indicating that the increase in imports was driven entirely by higher volumes when compared to February 2019.

With these developments, earnings from tourism were provisionally estimated to have declined to US dollars 391million in February 2020, in comparison to US dollars 475million in February2019.

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Workers’ remittances records growth

Workers’ remittances recorded a growth of 5.4% in February 2020, year on year, amounting to US dollars 527million. On a cumulative basis, workers’ remittances grew by 6.0 per cent to US dollars 1,108 million during the first two months of 2020 in comparison to the corresponding period of 2019. Workers’ remittances are also likely to be affected by the COVID-19 outbreak in the forthcoming months, with key sources of remittances such as Italy, South Korea and the Middle East being affected by the pandemic and the resultant economic slowdown.

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Exchange rate stabilizes

The Sri Lankan rupee, which remained stable until mid-March2020,depreciated sharply during the latter part of March up to mid-April 2020, mainly due to adverse speculation in the market with the spread of COVID-19 outbreak.

However, the exchange rate gradually stabilized, with a notable appreciation in the first week of May 2020.Accordingly, the rupee recorded a depreciation of 3.4per cent against the US dollar by 15 May 2020.

Reflecting cross-currency movements, the rupee depreciated against the Japanese yen while appreciating against the euro, the pound sterling, the Canadian dollar, the Australian dollar and the Indian rupee during the year up to 15May 2020.